This morning, the following email was sent to all Tesla employees:
As we all first-hand experience, the past year has been the most challenging in Tesla's history. However, thanks to your efforts, 2018 was also the most successful year in Tesla's history: In the last quarter alone, we delivered nearly as many cars as in the entire last quarter of 2017 and last year combined almost as many cars as in all previous years years of Tesla's existence ! The Model 3 also became the best-selling premium vehicle of the year 2018 in the US. That's really remarkable, and something few would have thought possible recently.
In light of our mission to accelerate the advent of sustainable transportation and energy, which is important to all of Earth's life, we face a very difficult challenge: to make our cars, batteries and solar products competitive with fossil fuels. Although we have made great progress, our products are still too expensive for most people. Tesla has only been producing cars for about a decade and we are dealing with massive entrenched competitors. The bottom line is that Tesla has to work much harder than other manufacturers to survive while producing affordable, sustainable products.
In the third quarter of last year, we achieved a 4% gain. Although small compared to most standards, I would still consider this as our first significant gain in the 15 years since Tesla was founded. However, this was partly due to the preference to sell higher model 3 variants in North America. In Q4, preliminary, unaudited results show that we returned to GAAP earnings, but less than in Q3. As in Q3, shipping of more expensive Model 3 variants (this time to Europe and Asia) will hopefully enable us to make a small profit with a great deal of effort, effort and luck.
From about May, however, we will have to deliver at least the mid-range Model 3 version in all markets as we have to reach more customers who can afford our vehicles. In addition, we need to make further progress towards more favorable variants of the Model 3. Currently, our most affordable offering is the mid-range Model 3 (264 miles) with world-class sound and an interior of $ 44,000. The need for cheaper variants of the Model 3 will be even bigger on July 1, when the US tax credit will be halved again, making our car more expensive at $ 1,875, and at the end of the year when it's completely gone.
I'm sorry for all these numbers, but I want to make sure you know all the facts and figures and understand that the way to the future is very difficult. This is not new to us - we've always been facing big challenges - but it's the reality we have to face. There are many companies that can offer better work-life balance because they are bigger and more mature, or in industries that are not so voraciously competitive. Attempting to build affordable clean energy products on a scale-scale inevitably requires extreme effort and relentless creativity. However, to make our future successful, it is imperative that the future is good. So we have to do everything we can to make it happen.
For this reason, we unfortunately have no choice but to reduce the number of full-time employees by about 7% (we have grown by 30% in the last year, which is more than we can support) and keep only the most critical temporary workers and contractors. Tesla needs to make these cuts while increasing the production rate of Model 3 and making many improvements in manufacturing technology over the coming months. Larger quantities and improvements in manufacturing design are critical to Tesla's ability to achieve the economies of scale required to produce the standard range (220 miles), the standard interior model 3, at $ 35,000 and still be a viable business. There is no other way.
Many thanks to all who have left to do everything possible to advance our mission. I am deeply grateful for your contributions to Tesla. Without you, we would not be where we are today.
For the remainder, though many challenges are imminent, I believe that we have the most exciting product roadmap of any consumer goods company in the world. Full self-propelled, Model Y, Semi, Truck and Roadster on the vehicle side and Powerwall / Pack and solar roof on the energy side are just the beginning.
I am honored to work with you.
Thank you for everything,